TOP TIPS FOR GROUP ACCOUNTS CONSOLIDATION

Group accounts consolidation is a method of financial reporting where a group of organisations are treated as a single entity or it can be used as a formal process of legally combining the accounts of two or more organisations. A consolidation adds together the assets, liabilities and results of the parent organisation and all of its subsidiaries.

Within group account consolidation, there are two outcomes:

A new organisation is created, and all previous organisations cease to exist;

The organisations that have been acquired continue to function as a stand-alone businesses but are recognised as subsidiaries instead;

Although in some cases the parent business and its subsidiaries might continue to operate as induvial businesses, when their financial statements are consolidated they are treated as a single entity and thus their consolidated financial statements are given to their investors, regulators, or customers a better overview of the entire entity’s overall financial health.

Such group account consolidations are usually expected to increase market share; reduce competition; and increase profitability by combining resources, technology, and industry expertise.

Often having so many variables in a pile can get a bit problematic, so we made a list of few concepts that one should be paying closer attention to, when consolidating group accounts.

INTRA-GROUP TRANSACTION RECONCILIATION

These are internal transactions that aren’t normally relevant information for the external users of group accounts. Internal items are between the members of the same group, like the subsidiaries and the parent company. The principle here is to remove any internal items from the group figures. This will help show the accounts without high levels of activity or assets.

GOODWILL

Goodwill in group account consolidation is any excess of the amount paid for an acquisition over the net assets acquired. In some cases, this will give you the value of the whole acquired business being greater than the sum of its parts, that is considered goodwill.

NON-CONTROLLING INTEREST

In a scenario where a parent company is running a group account consolidation with less than 100 percent of share capital, you need to consider a fair value of the non-controlling interest for your goodwill calculation.

Once all of that is calculated, group account consolidation adds together the assets, liabilities and results of the parent and all of its subsidiaries. The investment in each subsidiary is then replaced by the actual assets and liabilities of that subsidiary. Such group accounts help to report on the underlying commercial reality of the effective control of the parent.

Often, each subsidiary will create their own set of accounts, and distribute them to the parent organisation via the email, and a considerable issue here is the risk of bad formulas and odd figures can make consolidations incredibly inaccurate. To avoid such situation a great solution is to unify the reporting and get a solid reporting software. Such software, like ProForecast, has a predefined data model that is saved in a database and each subsidiary can map their data with the model. Additionally, the solution decreases the time for data transformation of each subsidiary’s accountant.